Stakeholders and economic analysts have expressed optimism on the direction of the Nigerian economy which recently recovered from a recession. BUKOLA IDOWU examines the basis for the optimism.
Although 2018 started out on an apprehensive note, as the economy swarm in the unstable waters of fuel scarcity, rising violence and political hullabaloo in preparation for the 2019 general elections, economic analysts as well as stakeholders are expressing optimism of a good year economically for Nigeria.
GDP Growth Forecasts
The country which started on the road to recovery from recession in the third quarter of last year is expected to grow its Gross Domestic Product (GDP), which is a barometer of the economy by at least 2.1 per cent by the end of 2018.
According to the forecast of the International Monetary Fund (IMF), the Nigerian economy is expected to grow by 2.1 per cent in 2018 and 1.9 per cent in 2019, while the World Bank foresees a growth of 2.5 per cent. Likewise, international rating agency, Fitch Ratings is expecting the Nigerian economy to record a 2.6 per cent growth in 2018.
Local analysts similarly see the economy looking up with increased business activities bolstered by stable exchange rates, increased foreign exchange inflow stirred by rising oil price, reserves and investor confidence as well as government spending.
For the managing director and chief executive of Augusto Consulting, Dr. Bode Augusto, real GDP of Nigeria is expected to grow to N72 trillion by the end of 2018 from an estimated figure of N69 trillion in 2017. He also foresees unemployment rate dropping from an estimated 30 per cent in 2017 to around 27 per cent by the end of 2018.
Speaking on what 2018 will look like for Nigeria, he said “real GDP per capita should grow in 2018 but will still be below 2015 level. Unemployment rate will fall but the level will remain high. It should be easier for businesses to access foreign exchange to fund their operations and most businesses should see top line growth as well as profit growth.”
More Forex Availability
Foreign exchange which was a major issue in 2017 seems to have found a resting place as it has remained stable selling at N364 to the dollar on the streets, and around N360 at the Investors and Exporters Window (I&E) and the bureau de change market. Liquidity also seems to have improved as inflow from the I&E window, supplements the regular interventions of the Central Bank of Nigeria (CBN).
According to Fitch, Nigeria’s growth would be driven mainly by increased foreign exchange availability to the non-oil economy and increased fiscal stimulus as higher oil revenue and various funding initiatives have raised the government’s ability to execute capital spending plans.
Analysts at Afrinvest West Africa Limited in their outlook for 2018 stated that the optimism for the Nigerian markets in 2018 hinges on the slow but steady recovery in the general macroeconomic conditions following the upturn in global oil prices. The price of crude which has been bullish since the beginning of the year was up to $71.68 per barrel as at Friday last week stood at $70.44 per barrel by mid-week. So far, this year, it has risen by close to 20 per cent from around $60 per barrel.
“Stable oil price outlook puts less strain on monetary and fiscal policies given the significant dependence of government revenue on oil exports, as well as the umbilical reliance of the CBN on the sector’s foreign exchange earnings in optimising forex allocation. As the economy gradually regains its growth momentum, we are confident that improved fundamentals, coupled with enhanced investor sentiment – currently at all-time highs, will continue to drive equity asset prices”, said the Afrinvest analysts.
To the managing director and chief executive of Cowry Assets Management Limited, Johnson Chukwu, growth in economic output is expected to be driven by the oil and gas, agriculture and construction sectors given the developmental policy thrusts of the federal government currently being focused on these sectors.
“In the same vein, growth will be dependent on the degree of collaboration between the fiscal and monetary authorities towards a more inclusive and diversified economy. This would entail striving for a reduction of both interest rate and inflation rate, enhancing access to credit by the real sector, creating a more friendly business environment, as well as implementing policies as stipulated in the ERGP” averred Chukwu.
Corporates Enthusiasm for Investments
The optimism of stakeholders in the Nigerian economy was expressed by more than 100 chief executives of large corporates who were surveyed by global research and consultancy firm, Oxford Business Group (OBG). OBG in its inaugural edition of the Business Barometer: Nigeria CEO Survey, said 84 per cent of more than 100 high-level executives from across the country’s industries described their expectations for local business conditions in the coming 12 months as either positive or very positive.
Asides this, three out of four chief executives of large corporates in Nigeria surveyed, said they were likely or very likely to make a major investment in 2018. Commenting on the results, Souhir Mzali, OBG’s regional editor for Africa, said that while Nigeria was hit particularly hard by the fall in oil prices, recent developments, such as a rise in the stock exchange’s All Share Index (ASI), power reforms and increases in staple crop production, suggested that the country was now eyeing a new phase of sustainable growth.
“Clearly, there are still plenty of issues to tackle if Nigeria is to stoke growth to pre-2014 levels, or indeed higher, notably access to finance. However, the results of the inaugural OBG Business Barometer for the country point to a renewed enthusiasm among corporate decision makers, suggesting the economy is, finally, on the first steps towards its long-overdue recovery” she said.
In line with Mzali’s belief that there are issues to be tackled for the country to attain the projected growth levels, managing director and chief executive of Afrinvest West Africa Limited, Ike Chioke stressed the need for structural reforms in ensuring the country achieves its growth potentials.
“Despite the oil price tailwind driving asset prices and short-term growth outlook, Nigeria’s recurrent energy crisis, high unemployment rate, fiscal insolvency of sub-national governments, high dependence on oil earnings for fiscal revenue and current account stability as well as several unforced administrative errors by the ruling political class are constant reminders of unresolved structural fault lines” he stated.
The CEOs surveyed by the OBG survey had highlighted some of the key challenges that business leaders face in the country. Some of these challenges included borrowing, with 90 per cent of those surveyed rating access to credit as either difficult or very difficult. In addition, three-quarters of CEOs described their level of satisfaction with suppliers and service providers as either low or very low. In response to a question on attributes needed for the workplace, just over half, 58 per cent cited leadership as the skill most in need, ahead of research and development, and engineering.
Structural Reforms for Macroeconomic Resilience
Afrinvest chief, Chioke called on policy makers in the country to kick start structural reforms that will build long term macroeconomic resilience. “As the country nears two decades of uninterrupted democracy, by far its longest run post-independence in 1960, we believe issues to top the reform agenda over the next year should include: the liberalisation of the downstream petroleum sector, total deregulation of the power sector to enthrone a more cost reflective electricity tariff, governance reforms echoing some of the major themes of much talked about restructuring, infrastructure investing, economic restructuring to aid fiscal viability of sub-nationals and creation of job opportunities for the galloping population.”
Analysts at FSDH Research who are optimistic of a three per cent growth in the economy, however, noted that there are downside risks to the forecast growth, as social unrest and rising violence in some parts of the country may affect economic activities. “The rising social unrest in some parts of the country may affect economic activities and lead to escalating inflation rate. Also a significant drop in oil price may also have negative impact on the growth prospect.”
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